INFLATION UPDATE

Inflation declined on a monthly basis according to the latest data from the BLS.  Month on month inflation declined -0.2% while the year over year rate held steady at 3.4% (seasonally adjusted).  Core inflation actually rose on the month by 0.3%.  The major movers in the index were energy which dropped -4.4%, gasoline down -6.8%, and food inflation up 0.2%.

The core rate, which the Fed is keenly focused on will likely give the Fed some pause.  While it’s reassuring to see that some of the energy cost hikes have been transitory the rising core inflation is likely to make them hesitant regarding QE3.  This is the key takeaway from today’s report.

My inflation index, which includes a housing cost component, declined on a year over year basis.  Historically, this index has tended to track a higher rate of inflation than the BLS reports.  The recent declines in housing have played a key role in keeping this index subdued.  This month’s report was no different as the index came in at just 1.3% year over year.  The consumer’s largest asset continues to be a heavy burden.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • http://www.DollarMonopoly.com Craig Austin

    housing costs – is that calculated as a mix of renters and owners? fore example rent here in austin jumped 8.6% last year. just curious how you come up with the housing cost component

  • VRB II

    I’m told from a reliable source on capital hill the CPI in 2012 will be comprised of a basket of 10 items from the Dollar Store.

    Bernanke feels this is the most accurate measure available to compare the affects of QE3-QE7

  • http://www.DollarMonopoly.com DollarMonopoly.com

    hey if it’s documented then they can’t be held accountable for fudging the numbers.

  • Trey

    As usual, inflation defined here is a rate of increase, so a decrease in inflation means prices are still increasing just at a slightly slower rate. Compare this to the computer industry where the prices are actually going down for similar and greater value items. I think inflation and a growth driven economy are not necessary for the welfare of the majority of the public. Buying into the notion that it is necessary is against our best interests.

  • Dismayed

    “As usual, inflation defined here is a rate of increase, so a decrease in inflation means prices are still increasing just at a slightly slower rate. Compare this to the computer industry where the prices are actually going down for similar and greater value items. I think inflation and a growth driven economy are not necessary for the welfare of the majority of the public. Buying into the notion that it is necessary is against our best interests.”

    Trey – it’s debt deflation that’s the problem, not drops in specific markets. Here’s a good link if you’re interested in challenging your beliefs:

    http://londonbanker.blogspot.com/2008/07/fishers-debt-deflation-theory-of-great.html